Why Trudeau should reverse Harper’s tax cuts — and why he can’t

It’s already started. Many of the policies of the Harper era will soon be history, swept away by the new Liberal broom.

Bill C-51, the anti-terrorism legislation, will face substantial reform. Canada’s foreign policy is expected to return to a more balanced approach of multilateral engagement. The provinces will be consulted. Journalists will once again get to ask questions. The criminal justice system will turn away from revenge and back towards rehabilitation.

These Harper policies will die because they were never terribly popular in the first place — except with the one-third of Canadians who shared his worldview — and because they’re relatively easy to change. In a few cases — such as getting rid of mandatory minimum criminal sentences — you might even save the taxpayer some money.

But Stephen Harper’s hand still has a grip on the federal government, and will for some time to come. His time in power has altered the scope of what the federal government does, and what it can expect to do, with public money.

For the past nine years, the Harper administration has been focused on one long-term goal: shrinking the role of government in the lives of Canadians. Taking his cue from U.S. Republicans — the same people who taught the Tories how to build a voter base, cultivate wedge politics and constantly denigrate foes — Harper worked to “starve the beast” and limit the reach of government.

The strategy goes back at least to Ronald Reagan: erode the size and scope of government by starving it of taxes, prompting the collapse of the social safety net and other policies hated by the right. “How can we ever cut government down to size?” asked Milton Friedman, the neo-con economist of the Chicago School. “I believe there is one and only one way, the way parents control spendthrift children, by cutting their allowance. For government, that means cutting taxes.”

When Harper cut the GST by two percentage points early in his mandate — denying federal coffers $14-billion a year — the short-term goal was to win votes. The long-term goal was to make sure that the federal government couldn’t expand its mandate or undertake major new programs like pharmacare — because the money simply wouldn’t be there.

Getting rid of the whole panoply of boutique tax credits could save the treasury a fair bit of cash — but the Liberals would surely face a groundswell of opposition from soccer moms, volunteer firefighters and hockey coaches. It’s a lot easier to give away tax money than it is to take it back.

The Tories didn’t stop with the GST cut. They slashed corporate taxes and repeatedly sliced and diced the Income Tax Act, creating scads of boutique tax credits — for children’s skating lessons, volunteer firefighters and the purchase of tools by apprentice mechanics. These measures were designed primarily to buy votes, but they also served to undermine the tax system and put the beast on a crash diet.

On the campaign trail, Harper liked to boast that Canada’s federal tax burden, at 14.3 per cent of GDP in 2014-15, was the lowest it had been in more than 50 years. Lower taxation has become so ingrained in the Canadian political psyche that neither the Liberals nor the NDP dared talk about raising taxes in the election campaign, except at the margins. Trudeau did say he would raise taxes on the “top one per cent” by increasing the rate on incomes above $200,000, but he was careful to state that the money raised would go to pay for a tax cut benefitting middle-class Canadians.

Trudeau hasn’t dared breathe a word about restoring the GST to its level of seven per cent — a measure that most economists say would do the least harm to the economy and restore balance to the system, which has come to rely too heavily on personal income taxes.

The Liberals have promised a review of “tax expenditures” — the billions of dollars that bleed from federal revenues through tax breaks to business, like credits for mining exploration, or to individuals in the form of those tiny tax credits for children’s ballet lessons.

Getting rid of the whole panoply of boutique tax credits could save the treasury a fair bit of cash — but the Liberals would surely face a groundswell of opposition from soccer moms, volunteer firefighters and hockey coaches. It’s a lot easier to give away tax money than it is to take it back.

Trudeau also would have a far easier time getting rid of these silly credits if he hadn’t promised one himself. During the campaign, he actually made one of the more absurd promises offered by any leader — the Teacher and Early Childhood Education School Supply Tax Benefit. The credit would provide up to $150 a year to teachers to reimburse them for out-of-pocket costs for the construction paper, coffee stir-sticks and glitter-glue they buy for use in their students’ school projects. The fact that the federal government has no role in primary education seemed beside the point.

While the cost of this “scrapbook and glue” tax credit was estimated at only $60 million a year, adding a new boutique credit is an unnecessary expenditure and simply makes eliminating all the other Harper tax gifts even more difficult — if not impossible.

Which, of course, was Harper’s goal all along.

Alan Freeman is a Senior Fellow at the University of Ottawa’s Graduate School of Public and International Affairs. He came to the U of O from the Department of Finance, where he served as assistant deputy minister of consultations and communications. Alan joined the public service in 2008 after a distinguished career in journalism as a parliamentary reporter and business journalist for The Canadian Press, The Wall Street Journal and The Globe and Mail. At the Globe, he spent more than 10 years as a foreign correspondent based in Berlin, London and Washington.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.

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Alan Freeman is an Honorary Senior Fellow at the University of Ottawa’s Graduate School of Public and International Affairs. He came to the U of O from the Department of Finance, where he served as assistant deputy minister of consultations and communications. Alan joined the public service in 2008 after a distinguished career in journalism as a parliamentary reporter and business journalist for The Canadian Press, The Wall Street Journal and The Globe and Mail. At the Globe, he spent more than 10 years as a foreign correspondent based in Berlin, London and Washington.